Roubini: U.S. May Spark China Trade War

The U.S. government may spark a trade war with China if it calls the Asian giant a “currency manipulator” in an upcoming report, says New York University economist Nouriel Roubini.

“With unemployment at 10 percent and more than 130 Congresspeople saying we should brand China as a manipulator, the probability the U.S. is going to do that in its mid-April report is significant, I would say at least 50 percent,” Roubini says.

“That could lead to a trade war, absolutely,” he tells Bloomberg.

The Treasury Department will decide in April if it will brand China as manipulating its currency, something it hasn't done since 1994.

Washington says China is keeping its currency, the yuan, artificially cheap to make its exports more competitive while Beijing says the yuan isn't undervalued.

China pegged the yuan to the dollar in 2008 to help exports weather the global recession but may let it float against the greenback soon.

That, Roubini says, would be in China's best interest.

“Under a floating exchange rate the yuan will appreciate, prima facia evidence that the yuan is undervalued,” Roubini says. “It is in the interest of China to let the currency appreciate.”

While Beijing has defended its currency policy in the face of international criticism, some Chinese economists have said it's time for the yuan to strengthen.

“[China] should resume the pre-crisis managed floating exchange rate as quickly as possible,” Xia Bin, a researcher with the Development Research Center, a government think-tank, tells Reuters.

The U.S. government may spark a trade war with China if it calls the Asian giant a currency manipulator in an upcoming report, says New York University economist Nouriel Roubini.
With unemployment at 10 percent and more than 130 Congresspeople saying we should brand...